A line chart showing that FBL's share price has been doing a lot better than the share prices of comparable companies since the sister company deal was announced, on Sept. 4, 2020. (Credit: FBL)

Managers of FBL Financial Group Inc. say the firm has agreed to let sister company Farm Bureau Property & Casualty Insurance Company take it private.

The Iowa Farm Bureau Federation controls both companies.

Farm Bureau P&C plans to pay $56 per share, or a total of $528 million, to buy the shares of FBL Financial stock that neither Farm Bureau P&C nor the Iowa Farm Bureau Federation own, according to FBL Financial and Farm Bureau P&C.

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FBL Financial began talking about the possibility of going private in September. Farm Bureau P&C said at that time that it was offering to pay $440 million, or $47 per share, for the shares of FBL Financial stock held by public investors.

In October, the company announced that it had hired outside advisors to help it evaluate the Farm Bureau P&C offer.

Paul Larson, chairman of a special committee of FBL Financial directors that was formed to evaluate the offer, said in the deal release that the special committee’s focus has been on maximizing value for the company’s outside shareholders.

“This transaction delivers immediate cash value to them at a significant premium,” Larson said.

Farm Bureau P&C “has been a long-term partner of FBL Financial and shares our dedication to protecting the livelihoods and futures of our customers, and we are confident that this transaction is in the best interest of unaffiliated shareholders,” Larson said.

The companies need approval from regulators and FBL Financial shareholders to complete the deal. They said they hope to complete the deal by June 30.

The Companies

FBL Financial is a West Des Moines, Iowa-based life insurer whose stock has traded on the New York Stock Exchange under the symbol FFG, since 1999.

The Iowa Farm Bureau Federation formed the P&C business in 1939 and the life business in 1944.

The Iowa Farm Bureau Federation owns 60% of FBL’s Class A Common stock and 67% of the company’s Class B common stock. It also controls the Farm Bureau P&C company.

All three companies have headquarters offices at 5400 University Ave. in West Des Moines.

The Deal Value

The share price in the new agreement is $9 higher than the price in the September proposal. Larson said the new price reflects the effects of several rounds of negotiations.

Farm Bureau P&C increased its offer multiple times. It also agreed FBL Financial should continue to pay its regular quarterly dividend through closing, he added.

In a deal presentation, FBL Financial managers noted that the price of the firm’s shares was just $37.25 Sept. 3, 2020.

Since Sept. 3, 2020, the price of FBL shares has increased 44%, while the price of a basket of life and annuity issuer stock that includes shares from Athene, American Equity Investors Life, CNO Financial Group, Globe Life and Primerica has increased just 22.6%, according to the presentation charts.

FBL Financial reported adjusted operating income of $117.5 million in 2019, with adjusted operating return on equity of 10.7%.

The COVID-19 pandemic and low interest rates probably cut 2020 adjusted operating income to about $88 million to $92 million, with adjusted return on equity of 8.1% to 8.4%, FBL Financial estimated.

This year, the effects of low interest rates, increased annuity account withdrawals and increased investment in the company’s wealth management business are likely to hold adjusted operating earnings to $96.9 million, with adjusted return on equity of 8.7%, FBL Financial predicted.

The $56 per share deal price would give the Farm Bureau P&C-FBL Financial deal a total price equal to about 14.1 times earnings, which compares to a 12.0-to-1 price-to-earnings ratio for life insurers and a 6.3-to-1 price-to-earnings ratio for annuity issuers, FBL Financial told its shareholders.

The Farm Bureau P&C-FBL Financial deal would have a price-to-book value ratio of 1.26 to 1, which compares with a ratio of 1 to 1 for a recent annuity block deal involving KKR and Global Atlantic, according to FBL Financial.

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